Who May Serve as Trustee of the Irrevocable Life Insurance Trust?

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To avoid “incidents of ownership,” and thereby pull the insurance proceeds back into your estate for federal estate tax purposes, the Trustee should be someone other than you.

A family member may be named as the sole Trustee of the ILIT, but it is usually better to name a professional Trustee, such as an accountant or institutional Trustee familiar with the administration of ILITs. The corporate trustee can act as a sole trustee, or as a co-trustee with the family member.

Professional trustees are accustomed to maintaining adequate records, handling notifications of demand rights to beneficiaries, filing any necessary tax returns, reviewing insurance policies for performance, and furnishing periodic accountings and information to the beneficiaries. All of these operational steps in the ILIT are crucial to maintain its federal estate tax-exempt status. Moreover, when the Trustee collects the death benefits from the insurance policy, a professional Trustee may be able to provide better asset protection from the beneficiaries’ creditors or “predators” who would seek to take advantage of them.